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Short-sellers have been ramping up their bets against the UK’s biggest supermarket, Tesco, in the run-up to its Christmas battle with the German discounters as they continue to tear chunks out of the big four’s market share.

Hedge funds had been upping their short positions against London’s listed supermarkets before the crucial festive period but have only recently turned on Dave Lewis’s recovering Tesco.

Short-selling , in effect a bet the share price will fall, is used when they believe a business is overvalued or want to hedge against a stock’s risk, for instance during a merger.

Margins at the big four supermarkets – Tesco, Sainsbury’s, Morrisons and Asda – have been squeezed by UK inflation...